Monday, 25 Oct 2010 08:38 AM
Federal banking regulators are examining whether mortgage
companies cut corners on their own procedures when they moved to
foreclose on people's homes, Federal Reserve Chairman Ben
Bernanke said Monday.
Preliminary results of the in-depth review into the practices of
the nation's largest mortgage companies are expected to be
released next month, Bernanke said in remarks to a
housing-finance conference in Arlington, Va.
"We are looking intensively at the firms' policies, procedures
and internal controls related to foreclosures and seeking to
determine whether systematic weaknesses are leading to improper
foreclosures," Bernanke said. "We take violation of proper
procedures very seriously," he added.
The central bank's decision adds weight to federal and state
investigations into whether banks used flawed documents to
foreclosure on homeowners.
Attorneys general in all 50 states plus the District of Columbia
are jointly investigating whether paperwork and legal procedures
were handled properly. At the federal level, the Treasury
Department's Office of the Comptroller of the Currency last
month asked seven big banks to examine their foreclosure
practices. The OCC and the Federal Deposit Insurance Corp. are
also working with the Fed on its examination.
In addition to probing the banks handling of foreclosure
documents, Fed staffers and other federal agencies are
evaluating the potential effects of the foreclosure debacle on
the real-estate market and on financial institutions, Bernanke
said.
The Federal Reserve oversees bank holding companies — typically
Wall Street's biggest banks — including Citigroup, Bank of
America, JPMorgan Chase & Co., and Wells Fargo.
The inquiries come as Bank of America and Ally Financial Inc.'s
GMAC Mortgage have resumed processing foreclosures, after
halting them temporarily to review documents. Both lender face
allegations that employees signed but didn't read foreclosure
documents that may have contained errors. Other companies,
including PNC Financial Services Inc. and JPMorgan, have halted
tens of thousands of foreclosures after similar practices became
public.
The federal agencies have a range of options at their disposal.
They include issuing a "cease and desist" order requiring a
company to stop engaging in a specific practice. They can impose
fines on the companies. Agencies also can take less drastic
actions, such as crafting a plan with the company to fix any
problems.
Bernanke didn't provide details in his speech.
According to people familiar with the examination, the banking
agencies are looking into whether companies had controls in
place when foreclosure documents were signed, what procedures
were in place to proper handle documents, and whether employees
involved in the foreclosure process were adequately trained.
Dubious mortgage practices and lax lending standards were blamed
for contributing to a housing bubble that eventually burst and
thrust the economy from 2007-2009 into the worst recession since
the 1930s. Many Americans took out home loans that they didn't
understand and bought homes that they couldn't afford.
As a result, foreclosures have soared to record highs. It's one
of the negative forces restraining the economy's ability to get
back on sounder footing.
Now more than 20 percent of borrowers owe more than their home
is worth, and an additional 33 percent have equity cushions of
10 percent or less, putting them at risk should house prices
decline much further, Bernanke said.
"With housing markets still weak, high levels of mortgage
distress may well persist for some time to come," Bernanke
warned.
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